[ad_1]
Calling Tencent Holdings a "video game giant" in China may soon be a thing of the past. The Internet company has embarked on a transformation and diversification of its business model following the government crackdown on the video game industry last year. Since then, Tencent's dependence on luxury brands for growth has reached a new level – as has the strong competition it will face to dominate this sector.
Deep dive in the luxury trade
In the third quarter results released by Tencent earlier this month, there were clear signs that the company is becoming a driving force for online advertising. Its revenue comes from its "social advertising and other" activity, which specifically refers to ads placed on its social messaging platform WeChat (Moments and mini-programs), up 61% from the previous year . Overall, revenue from its online advertising business jumped 47% to $ 2.34 billion (RMB16.25 billion).
Luxury brands are an important part of this growth in advertising. Although no specific business figures have been published, nearly 90% of companies that have posted ads on WeChat over the past year have qualified their business as "luxury". Said Tencent. Jing Daily.
Tencent is not the only one to bet on the appetite of Chinese luxury. Its main rival, the Alibaba Group, has also stepped up its efforts to encourage brands to sell on their platform, notably by setting up an exclusive online platform, Luxury Pavilion. Alibaba's platform has hosted a list of top players like Loewe, Valentino and Tiffany.
But Tencent has the WeChat edge. Nowadays, every luxury brand operating in China has an official account (subscription or service, or sometimes both) on WeChat. Players with large advertising budgets such as Christian Dior, Tiffany, Cartier, Gucci and Louis Vuitton often use Moments Ads, mini-programs and WeChat Pay during key holiday periods in China to provide buyers with a complete sales experience online retail.
Some luxury brands are also among the first supporters of the new features of WeChat. The French brand Christian Dior, for example, was the first luxury brand to sell on WeChat in 2016 – a practice now widely adopted by the luxury industry. Recently, Dior again became the first to sell via the WeChat live broadcast mini-program, an area the company plans to develop and monetize.
Extension abroad
Tencent, which is spending money to gain market share, is expanding its advertising service to luxury brands that hope to attract wealthy Chinese travelers. In the United States, for example, last year, it set up a subsidiary group called International Business Group of Tencent.
Affordable US luxury brand Michael Kors is a key customer. Before the Golden Week peak period in October of this year, the group developed an online advertising plan, generating a 935% return on investment above the industry average and a higher engagement rate of 330% to that of the industry. standard, according to Tencent.
"[Our service] This includes helping brands to better interact with Chinese travelers by leveraging our unique set of solutions, which targets the consumer throughout the decision-making process, "said Poshu Yeung, vice president of Tencent International Business Group. .
Yves Saint Laurent, Dolce & Gabbana, Mulberry and Coach are also among the luxury customers.
Moving forward
Tencent's entry into the online advertising industry coincides with the significant development of China's luxury industry from 2015 to the present. Nevertheless, it remains to be seen whether its development can maintain the current momentum.
In a research note published on Nov. 14, Morgan Stanley predicted that Tencent's online advertising revenues could account for 20% of total revenues in 2020 and maintain an optimistic growth rate of 39% per year between 2017 and 2020. In 2014 only 11% of Tencent's total revenues came from advertising.
The same report cautioned however that a "macroeconomic slowdown in China affecting advertising budgets" could hurt the growth of Tencent's online advertising.
[ad_2]
Source link
